Entertainment Industry Veteran and Entrepreneur

As Chinese officials and industry reps from the U.S. prepare to reopen negotiations around the China’s foreign film quota, signs from multiple stakeholders on the Chinese side indicate they’re prepping for stiffer competition from Hollywood.

China appears to be preparing for more movies from Hollywood into the People’s Republic, loosening the prior import quota that has limited the amount of overseas industrial competition.

Officials, industry leaders, film industry analysts and local media report the number of foreign films introduced to China could be introduced up to 36 more than the current 34 films, for a total of 70.

Despite this, how much China’s film regulators are prepared to loosen their grip on the number of foreign titles allowed in is uncertain.

Despite the clear surfeit, film regulators maintained that the films imported was considered “cultural exchange projects” and aren’t counted in the 34.

“2017 is starting to be called a strong year for Hollywood films,” the executive wrote.

Shanghai Media Group CEO Li Ruigang hinted that the film import quota could soon go up as high as “50, 60, or even 70 US films.” On Thursday, local film industry analyst Chen Changye told The Global Times newspaper that he predicts a dozen more films will be added to the quota and that no quota will be specifically assigned to 3D movies.

With 70 titles listed as having a chance of making it to the world’s second largest theatrical film market, it can be a massive progression for Chinese-U.S. film and cross-cultural relations.

As the political climate changes amongst the newest presidency in the United States, Chinese/U.S. coproductions and business relations may become tougher than we have imagined. A major example of this, which can be used of what is to expect in the future, is the most headline breaking Wanda-Dick Clark acquisition deal.

In November 2016, The Dalian Wanda Group announced a blockbuster $1-Billion dollar agreement to acquire Dick Clark productions. Now, three months later, the deal is taking longer than originally anticipated, causing a great deal of speculation amongst the Hollywood finance and international co-production communities. Although the acquisition is still ongoing, it is expected to conclude before March 2017. It is the most recent Hollywood acquisition by Wanda since purchasing Legendary Entertainment for $3.5-Billion and AMC Theaters for $2.6-Billion five years ago.

Dick Clark Productions is most recognized for the Golden Globes, American Music Awards, and Dick Clark’s New Year’s Rockin Eve specials.

The largest speculation revolves around the recent inauguration of U.S. President Donald Trump, and his administration’s nationalistic ideology. Wanda, in addition to other Chinese conglomerates such as Alibaba, Sina, etc. fear the scrutiny of major U.S. investments and acquisitions under the Trump administration. Members of the U.S. Congress have already begun to scrutinize Wanda for their strategic extension of ‘soft-power’ through cultural influence over these three previous mega-acquisitions.

In 2016, Chinese overseas investment rose 150% of that in 2015, according to an estimate by the American Enterprise Institute. Of that overseas investment, the U.S. received approximately $50-Billion. The report project Chinese investments in the U.S. to decline significantly in 2017, due to many new international finance agreements that have been proposed. These same agreements are complicating the Wanda/Dick Clark Productions acquisition.

According to Box Office Mojo, China’s movie market accounted for 13% of the $13.5B generated by the top 20 box office successes from US based studios. This is 300% it’s value of that in 2011. Many directly account China’s dismantling of the U.S. as the nation with the most Theatrical Cinema Screens in 2016 as the lead cause for these financial successes.
Disney’s “Zootopia” brought in $236M revenue in China, ranking the 3rd highest grossing film worldwide in 2016. While Chinese authorities typically a lot a 30 day period in theaters for foreign releases, the film’s success was so massive it granted an extended 14-day period as a means to inflate the local economy. “WarCraft”, despite being considered a failure in the U.S. Box Office, earned a revenue of $221 in the Chinese Box Office, accounting for over half of it’s worldwide revenue. The Chinese Box Office is the sole contributor towards making WarCraft a top 20-earning Worldwide release in 2016. “Captain America: Civil War” was China’s 3rd biggest success, bringing in $190M domestically. Reuters analysts have stated the Chinese audiences are still captivated as ever by Disney’s Cinematic Marvel Universe film franchise.
While U.S. foreign blockbusters continue to succeed in China, China will try to balance it’s native audiences attention with the outputs of it’s own’s domestic film industry.
China, meanwhile, is trying to balance audiences’ interest in Hollywood films with its desire to grow its domestic film business. Despite yielding these aforementioned successes, “The Mermaid”, a domestic Chinese release, was still China’s most profitable film of the year, making it the highest grossing film of all time in China and the 12th largest box office success worldwide, with a revenue Chinese domestic revenue of $527M.

In 2010, China and the United States endorsed a Memorandum of Understanding (MoU) that increased the US access into China and boosted revenue for U.S. film companies, ensuring that 34 revenue-sharing foreign films are imported to China annually and that foreign studios receive 25 percent of box office receipts. Chinese Film Regulation authorities are beginning to loosen their regulations of foreign films entering domestic china, as well as provide more flexibility towards US-Chinese co-productions. by the end of 2016, at least 38 foreign films will have been released in China, a number that exceeds the 34 films mandated in current bilateral agreements. Of these 34 films, the ones that provide the most favorable views of Chinese authority and government, or promote traditional Chinese cultural values, as well as films that have been produced through US/Chinese co-production typically get chosen over their other Hollywood counterparts. China Central Television (CCTV) executive Lu Hongshi stated, “Leveraging the Chinese market is the Chinese dream of the Americans,” and the profit of this leverage is an increase indigenous Chinese film development by American contribution.
The 18th Party Congress Report is the 2017 primary directive for China’s cultural sector is “developing a strong Socialist culture in China,” by creating new cultural products that are in line with the CPC’s core socialist values system, no matter whether they are originally intended to be or not. The biggest issue within these arrangements what American’s production houses consider censorship, as foreign films must pass strict regulations set by the State Administration of Press, Publication, Radio, Film, and Television (SAPPRFT). SAPPRFT justifies this by demanding their films portray social morality, and prohibit negative depictions of authorities or China in general. In 2017, U.S. studios and producers will continue to operate under politicized a censored environment, even if the number of foreign films released in China increases.
The CPC’s 13th Five Year Plan is their authoritative strategy for China’s cultural structure during 2017 to 2020. The 13th five year plan calls for a larger allotment of resources dedicated towards the cinema and television development, as well as enhancing socialist literature, music, and art. Under the 13th Five Year Plan, all modern arts arts cultural development must adapt to fit China’s traditional socialist values. CPC President Xi remains confident in China’s 5000 year old culture maintaining relevance in the arts.
These goals will most-likely conflict with the interests of U.S./foreign film production companies that seek access to the China through imposing restrictions and self-censorship. U.S. productions will be expected to adapt to “Chinese conditions”, or fear being replaced by Chinese domestic competitors.

Last Friday, the Box Office release of “The Great Wall”, the much hyped movie directed by Zhang Yimou and starring Matt Damon in China (it releases February 17, 2017 in US). The film had a budget of $150M, and is now the largest recorded China/US co-production budget for a film ever shot in China. This is telling of the future of the global Box Office climate. If “The Great Wall” is a box office success, it may be used as a standard and reference for large-budget co-productions in the future. Of the $150M budget, $45M was provided solely from Chinese private investors, an unprecedented quantity for a China/US co-production. Why did “The Great Wall” receive so much Chinese funding compared to the average Hollywood-China co-production? For the first time, the plot of the story was did not have subtle ‘chinese influences’ for Chinese audiences to grasp hold off, in return for financing or Chinese market exposure. In this particular case, the entire story originates and is centered around Chinese culture. This film can be used as a litmus test to predict the future of the global box office, and how production companies can learn from the cultures of their respective foreign partners to develop and release the finest product possible.

Peter Loehr, producer of ‘The Great Wall,’ told The New York Times “In general the U.S. system of everybody being super independent and each department head having their own little fiefdom and only presenting finished work versus the Chinese system where everyone wants to ask the director every single little detail — I think there’s probably a middle ground to be found somewhere there. I think we need to probably start thinking less about China and how to make a good movie that has Chinese elements.”

Since 2010, 10 of the 25 highest revenue generating films in China have been imported Hollywood films, despite only accounting for 10% of mainland China’s box office releases. Some of these, such as ‘Fast and Furious 7’, even specifically catered to Chinese tastes to generate more money in the international Chinese box office than the Domestic United States box office. As the competition thrives in China, Chinese production companies and studios have begun to counter their Hollywood counterparts with mass releases. The number of Chinese films was 700% in 2014 of what it was in 2005. Over this time, Chinese competitors have steadily improved in the quality of their product. Chinese super-corporations such as Baidu, Tencent, and Alibaba are aggressively financing and producing television and film. Baidu owns Youtube-competitor iQiyi, Alibaba has launched a direct-competitor to Netflix (Alibaba Pictures) and financed ‘Mission Impossible: Rogue Nation’ as well as other commercially successful feature films. As the competition rises from Chinese competitors, Hollywood studios will find it increasingly difficult to resonate with the fast-paced Chinese market compared to Chinese domestic studios. Hollywood’s list of weak competitors is slowly dwindling, and as a result US based studios must up the ante to remain fresh in the Chinese market.

China is currently the second largest global cinema market, and Hollywood films have both relied on and profited by the Chinese box office, even if they have failed at domestically. As China comes to wield more power over the global film market, Chinese moviegoers are raising their demands and expectations on the cinematic experience.

Of the top 25 films at the Chinese box office so far this year, 20 have been released in 3D.

Moving forward, Hollywood’s producers must understand and respect the audience’s demands, and truly hope that every customer in the market is able to choose a film format that corresponds to their viewing preferences. Hollywood films have gained a large degree of access to China, but conversely, China needs to be represented better in Hollywood as well.

Previously, audiences used to be excited by the presence of Chinese product placement in Hollywood blockbusters, such as the Yili low-lactose milk and China Construction Bank advertisements in the latest installments of the Transformers films series, which was a massive success in the Chinese box office.

Now, however, audiences are beginning to suspect that Hollywood broadly sees Chinese actors as stepping stones into the country’s vast and ever-expanding market. This claim is given weight by the fleeting cameos given to Chinese stars: Fan Bingbing, for example, appears only in the Chinese release of Iron Man 3, while Yang Ying’s role in Independence Day: Resurgence bears no relevance to the story.

The Chinese film industry is still considered a growing recently tapped market, with sights growing past the 100 Billion RMB mark, but the development of the Chinese audience is beginning to slow down. The Chinese film market is expected to be the number one film market by 2020, and Hollywood producers must now transition from Chinese releases with the intent of commercial gain to releases with artistic merit if they wish to keep their audiences enthused.

As of late Chinese outward investment (COI) has brought on excitement and concern across the globe.
It’s no different with respect to COI in the United States amongst the public and congress, who has been receiving COI for many years but remains anxious about future Chinese relations.

Of late, much of the focus has been on COI in the entertainment and leisure sectors.
Apprehensions range from Chinese “theft” of IP and American media companies have edited the content of films to suit Chinese preferences. As the Chinese audiences come to wield more power over the global development of the movie market, they are raising their demands on the cinematic experience. Earlier this year, for example, cinema-goers reacted with fury over the release of so-called fake 3-D movies. It is a pressing problem in the US, with Xenophobia rising as a hot topic amongst the 2016 US presidential debates.

Transparency is needed, and maybe America needs to worry more about strenghening ties and international relations than their content being slightly altered. A shift in mindset could be healthy to the American public, as we continue to open up to COI. It can greatly benefit the US by buying into the second largest movie market in the US as Hollywood films have profited in China in recent years, even when they have failed domestically.

China’s box office has a greater power over Hollywood than ever before. Most of Hollywood’s biggest pictures are reworked for Chinese mass-appeal. Hollywood’s biggest writers are now beginning to write with the intention of flexibility in their scripts for US and Chinese alternate versions. In 2017, it is speculated that China will surpass the U.S. as the highest income generating box office worldwide.

Below show some of the major players in Hollywood’s mass movement towards maintaining relations with China in 2016.

Pixar Animations/Walt Disney Animation, had massive success in China with The Jungle Book, Zootoptia, and Finding Dory in 2016. Disney seized the animation medium to seamlessly overdub all of the animation in Mandarin and Cantonese. These three films collectively made $1.18B in the U.S. B.O., and $423.7M in China.

The idea that a Warcraft film was greenlit is a statement in and of itself that China has put a chokehold on Hollywood’s recent output. Of the 6.5 million worldwide World of Warcraft players, over half are located in mainland China. Warcraft, like Pixar and Disney, had purposefully made Warcraft in CGI to redub for Chinese audiences. Warcraft, in both english and mandarin, stars Daniel Wu, who’s fame in China far surpasses his presence in the U.S. Warcraft was released Worldwide during the Dragon Boat Festival weekend in China, where most were off of work and free to enjoy the cinema during the national holiday. This release date strategy was very successful and we should expect to see more Hollywood releases during Chinese national holiday weekends. Warcraft made $47.2M in the US B.O., and $220.8M in the Chinese B.O.

Now You See Me, the 2013 Magician Heist flick was an okay at best U.S. box office return with $117M, but it more than doubled this with $234.8M and was considered a massive hit with China. For this reason alone, a sequel was greenlit with the intentions of catering towards Chinese audiences. Now You See Me 2 made $64.6M in the U.S., but far surpassed that with $97.2M in China.

In the future we should expect more Hollywood studios to join the bandwagon and produce films with the intentions of that generating Chinese revenues.

Wang Jianlin, China’s richest man, is doing everything in his power to incorporate Chinese traditions, worldviews, culture, and business practices into the Hollywood vocabulary. Fresh off purchasing a majority stake in Legendary Entertainment, the LA based film studio, Jianlin has decided to further invest in another studio, Sony Pictures Entertainment. The 61-year old billionaire has stated his ultimate goal is to purchase all of Hollywood’s “big-six” studios through “aggressive acquisitions.”

With hopes of featuring “the China Element” into a greater number of Hollywood big-budget studio productions, Jianlin readily signed a deal with Sony Pictures through his own company, The Dalian Wanda Group.

Sony Pictures Entertainment can expect expect a significantly larger distribution and promotion platform in China and the US, as Jianlin also owns AMC Cinemas, a global chain of movie theaters. For Jianlin and Wanda, it’s an additional boost of Chinese influence in the worldwide film and entertainment industry, as well as a direct deal between a major studio, marketing group, and retail cinema chain.

The agreement will have Chinese conglomerate The Dalian Wanda Group marketing Sony Pictures’ films and co-financing some of its upcoming movie releases in China. The partnership will also further forward Wang’s goal of making his company an international entertainment powerhouse.